Economic data for the week was highlighted by a FOMC meeting in which policy was left unchanged, some mixed to lower results for a variety of manufacturing and services indexes; the April employment situation report was mixed as well but continued to point to a strong underlying labor market.

U.S. equity markets were mixed due to a waxing and waning of trade fears, while foreign stocks lost ground due to a stronger dollar. Bonds were flat in the U.S. with little changes in rates, while foreign issues had similar dollar effects. Commodities gained with higher prices in crude oil and metals.

U.S. stocks ended the week flat to down, as a flurry of generally strong earnings reports has also included mixed sentiment about how long this business cycle will last. From a sector standpoint, healthcare and utilities experienced strong gains, while industrials and materials lost the most ground during the week. The losing groups were affected by weaker-than-expected outlooks for coming quarters and potential ‘peaking’ in profit activity for several firms, not to mention now-higher interest rates, which naturally brings about broader concerns about the durability of this cycle.

However, the good news doesn’t seem to be over yet, as operating earnings for the S&P 500 appeared to have grown at a rate of roughly ~25% over the past year—the highest year-over-year increase in eight years—with just over half of companies reporting. Almost 80% of firms have reported numbers surpassing initial estimates, with the largest surprises having occurred in technology (notably Alphabet/Google and Facebook) and consumer discretionary (Amazon). Overall rates of growth are highest in energy, materials and technology, at well over +30% each. For the overall index, some of this represents the anticipated impacts of tax reform, but also underlying revenue growth and improved profit margins in a variety of sectors. A weaker dollar has played a role in helping export numbers, while higher oil prices have boosted energy and financials have benefitted from higher long-term interest rates (although the curve has flattened).

Foreign stocks ended the week with positive returns in local terms, with Japan and U.K. faring best, while emerging markets came in negatively—global exceptions were commodity-oriented nations that have benefited from higher pricing, such as Canada, Australia, Brazil and Russia. However, a very strong dollar for the week brought down these returns substantially. European earnings results have been reasonably good as of late, and the ECB left monetary policy unchanged last week, although concerns over flattening growth has led the ECB to retain dovish language, which markets seem to appreciate.

U.S. bonds ended flattish, as rates ticked higher but retraced lower by Friday, with the 10-year Treasury touching and coming back from the technically significant 3% level—for the first time in four years. Governments and floating rate bank loans outshined with positive returns, outpacing investment-grade corporates, which lost a bit. With the U.S. dollar rising over a percent for the week, conventional developed and emerging market bonds significant losses in USD terms.

Real estate fared well despite the continued higher moves in interest rates, while Europe and Asia rose to a far lower degree. Healthcare and mall/retail REITs recovered sharply, upwards of +5% for the week, while lodging and mortgage REITs lagged, albeit still earned positive returns.

Commodities ended the week mixed, with gains in energy and agriculture offset by large declines in industrial metals and precious metals. Industrial metals were led by a drop in the price of aluminum, reversing a spike the prior week related to a Russian firm targeted by sanctions. Despite equity market volatility week-to-week, precious metals face the challenge of rising real interest rates from risk-free treasuries—gold’s primary competition for safe haven asset flows.

The information above has been obtained from sources considered reliable, but no representation is made as to its completeness, accuracy or timeliness. All information and opinions expressed are subject to change without notice. Information provided in this report is not intended to be, and should not be construed as, investment, legal or tax advice; and does not constitute an offer, or a solicitation of any offer, to buy or sell any security, investment or other product.